The Reserve Bank of India (RBI) has banned the banks it regulates from dealing or settling cryptocurrencies.

In a statement yesterday, the regulator noted that technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system. “However, virtual currencies (VCs), also variously referred to as cryptocurrencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others,” it read.

The RBI has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies.

“In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs,” the RBI stated, adding that regulated entities which already provide such services must exit the relationship within three months.

A response statement from Indian Bitcoin wallet provider Unocoin pointed out that the RBI's notice issued doesn’t specifically mention the legality of cryptocurrencies.

“As on today, no banks (that we are working with) have issued any notice to us and when they do and if it has an impact on you and/or us, we will surely communicate to you,” said Unocoin founder and chief executive Sathvik Vishwanath.

The regulatory update also mentioned work underway on the introduction of digital currencies. The RBI has set up an inter-departmental group to provide guidance on the feasibility of introducing a central bank digital currency, with a report due by the end of June 2018.

A report published in February noted that when faced with the profound changes that FinTech is bringing to the banking and financial sectors, regulators need to take care to avoid two pitfalls.

“The first is overprotecting incumbents by erecting barriers to entry for newcomers - doing so would discourage financial innovation and stifle competition in the financial sector - the second potential pitfall is choosing instead to unduly favour newcomers by regulating them less stringently than incumbents, in the name of fostering competition,” it stated.

Share Story: